Plan For A Smooth Retirement Phase

Think of retirement and we conjure up images of a relaxed laid-back life, lots of travel, pursuit of hobbies, and a generally wonderful period to look forward to. However, all these activities cost money and one would no longer be earning a salary at that stage. Plus, thanks to inflation, monthly groceries, utilities and healthcare costs would be a lot more expensive then than they are today. However, the good news here is that you can build a substantial corpus for a financially worry-free retired life by saving well and investing smartly. And the task becomes that much easier if you start early. [EasyDNNnews:PaidContentStart]

Most people working in the private sector would not receive any pension. Fixed income instruments earn low returns that may not even beat inflation over the long term. Therefore, the best way for retail investors to beat inflation is through diversifying their portfolios across equity, debt and commodities (gold, silver), which should ideally be done via mutual funds, as they cater to various time horizons and risk appetites. Mutual funds are excellent vehicles for generating a sufficiently large retirement corpus and also to derive a steady income postretirement. 

Planning Systematically It is important to save for your retirement separately like you do for other life goals. 

1. Deciding the Sum: First, decide how much money you will need to accumulate for your retirement. This can be done by extrapolating your current annual expenses, utility bills and other cost heads to the time of your retirement.
2. Accounting for Inflation: A critical factor in deciding your final retirement corpus is inflation. On an average, taking a 6-7 per cent annual price rise would be a reasonable assumption. Healthcare inflation is much higher – usually, twice that of general inflation. Monthly expenses of ₹25,000 currently would become nearly ₹1 lakh after 20 years if inflation is 7 per cent.
3. Factoring Risk Appetite, Surplus and Time Horizon: Once these details are in place, you must then decide how to get there. You can sit with your financial advisor to assess how much risk you can take, work out your investible surplus and decide the timeline for retirement. Those in the early 30s can take more risks than others in, say, their late 40s or early 50s.
4. Choosing the Investment Amount and Mutual Funds: Basis the first three steps, you can easily decide how much you will need to save and invest in mutual funds every month to reach your goal. 

Funds for Pre and Post-Retirement Phases
There are multiple styles of portfolio construction for investors of varying risk appetites. A common mode of building a portfolio is the core satellite approach. The core portfolio is the main part with a defined strategy and accounts for much of the investment amount. The satellite part has opportunistic investments, riskier assets and so on but with a smaller weightage. The idea is to blend the investments for robust riskadjusted returns. For example, those in their early 30s with fairly healthy risk appetite could consider Large-Cap, flexi-cap and multi-cap funds for their core portfolio and allocate 70-80 per cent of their regular investment amount (decided earlier) in these schemes via the SIP mode. The satellite portion could consist of Mid-Cap and Small-Cap funds, thematic and sector schemes and so on, which would account for the remaining investible surplus. 

You could consider parking occasional bonus or incentive amounts that you receive in aggressive hybrid, balanced advantage or multi-asset funds such that the investment remains diversified in nature in terms of its asset allocation. If such an approach is followed over decades, i.e. investing systematically with discipline and increasing the investments periodically with salary increase, you will comfortably reach your target corpus. 

Post-Retirement Income Generation
After retirement, the focus should be on protecting the corpus created and generating income in a steady manner. For this objective, you can move a significant portion of your diversified equity fund proceeds to conservative hybrid or balanced advantage funds and initiate systematic withdrawal plans (SWPs) from them to generate regular income. This way, your investments will continue to earn returns, even as you withdraw sums periodically for your requirements. To conclude, building a sizeable retirement corpus with the help of mutual funds can be a reality if you are willing to stay invested over decades and more. 

The writer is Wealth Coach, Rathi Wealth Pvt. Ltd.
■ Email : [email protected] ■ Website : www.rathiwealth.in 

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]